Big 3 oil marketing cos pull down PSU dividend payout average

Mumbai: The nation’s public sector companies are nearly as generous in dividend payouts, and sometimes more so, than their private sector counterparts, but only if one excludes the three leading oil marketing firms: Indian Oil Corp. Ltd (IOC), Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd (BPCL).

Overall, the percentage growth in dividend payouts by 57 public sector undertakings (PSUs) for fiscal 2008 might suggest that state-owned companies are less liberal than their counterparts in the private sector.

A Mint analysis of dividend payouts for fiscal 2008 shows that net profit of all 57 PSUs, for which data is available, increased an average 21.32% in fiscal 2008 over the previous year, but total dividend payout grew only by 1.84% to Rs22,203.07 crore.

Excluding the oil companies, however, makes the public sector shine. While profits increased an average 24% for these entities (excluding the three oil marketing companies), their total dividend payout increased by 16%, much closer to the 25.62% for 853 private sector companies that Mint analysed. Private sector companies increased profit by 25.98% for fiscal 2008.

However, using a dividend payout ratio, which measures dividends as a percentage of net profits adjusted for other income, government-run firms —excluding the oil firms— fared better than most private companies, with an average dividend payout ratio of 27.43.

Though this was lower than the corresponding figure of 29.33 for the previous year, it was larger than the private sector’s 23.28 in fiscal 2008.

Essentially, the drag in performance can be attributed to IOC, HPCL, and BPCL, which have distorted the dividend picture against government-run enterprises.

The subsidized rate at which these three have had to sell petrol, diesel, liquefied petroleum gas (LPG) and kerosene at a time when crude oil—the raw material for these products—had been rising to record highs dented profits, and hence dividends.

In early January 2008, crude oil crossed $100 (Rs4,440 at present) a barrel and rose to a record of more than $147 in July before declining to around $106 recently.

IOC, which declared a dividend of Rs2,250.89 crore in fiscal 2007—making up 10% of the total dividends paid by all the 57 firms—paid a mere Rs655.81 crore in fiscal 2008.

HPCL paid Rs610.8 crore in fiscal 2007, but only Rs101.59 crore in the following year, while BPCL paid Rs578.46 crore in fiscal 2007 and Rs144.62 crore last fiscal year.

With the government’s fiscal deficit above targeted levels and rating agency Fitch saying the shortfall could deteriorate to 6.5% of gross domestic product in fiscal 2009, the government could do with funds from its firms.

“The mandate from the government is to have a minimum 20% of the net profits as dividends,” said the director of finance at a government-run logistics company, on condition of anonymity.

Oil companies could, however, play spoilsport again. According to a Business Standard report on 20 August, at a meeting called by Union petroleum minister Murli Deora to review the financial health of oil companies, the total revenue loss on sale of petrol, diesel, LPG and kerosene was estimated at Rs1.8 trillion this fiscal year.

Given that crude prices are still above $100 a barrel, the big three oil marketing companies are likely to drag PSUs’ average dividend payouts this fiscal year as well.